Exposing the hidden costs of using off-the-shelf analog ICs

July 05, 2011 //By Bob Frostholm
Exposing the hidden costs of using off-the-shelf analog ICs
Bob Frostholm of JVD examines the hidden costs of using off-the-shelf analog ICs

An ASIC does not necessarily have to be a custom integrated circuit. There are many standard analog chips in the market that are simply priced too high. It may make good economic sense to consider using an analog ASIC company that has developed a chip that mimics a standard product.

Analog ASICs are not for everyone. Like any component choice, they must offer the best economic value for the application.  Any associated up-front NRE costs (non-recurring engineering) must be factored into the equation along with hard tooling (wafer fabrication masks, test hardware and software and more). In addition, there is the issue of time. Analog ASICs can take from six months up to a year or more to be ready to use in a production environment. And of course, there is a minimum quantity that must be consumed to assure the value is received. These must all align properly to justify development of an Analog ASIC

Why do Standard Analog ICs Cost So Much?
No one designs and tools production for ICs for free. The OEM pays for this one way or another. When you buy a standard analog IC, some portion of the price you pay is used to cover the development cost of that chip. The real question becomes, what portion of the price you pay is actually the cost to make the chip? A simplified analysis is derived by viewing a chip company’s financial statement. The critical metric is Gross Profit Margin (GPM).

Gross Profit = Company Annual Sales – Actual Cost to Build the Products Sold

When viewed in their annual report, reflecting sales over a 12 month period, GPM is an average, meaning half of the chip company’s sales during that year achieved more than the reported GPM and half were below the reported GPM.

Depending on the GPM of the products you selected for your new design, it may be cost advantageous to consider

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